THE DISTILLERY: Wah Nam wary

Friday, the end of the week, Whew! But in Brisbane there will be a lot of nervy folk today and this evening. No long lunches, bottles of chardy and a few bugs and prawns or a big steak. No it's the Big One's big test; tonight. Sure you can sell most of Brisbane port for $2.7 billion, but a trainset is a different matter, especially when the price has turned out to be very rich. Only one real comment this morning. There should be more after the retail offer closes tonight.

Train leaving the station. According to The Australian Financial Review this morning: "Queensland Treasurer Andrew Fraser has acknowledged it has been harder to sell QR National shares to retail investors than institutional ones, but says both will still be vying for it when it floats later this month." Was anyone on board?

On the contentious ASX takeover, The Sydney Morning Herald reports: "Institutional investors have warned Canberra that the $8.4 billion planned merger of the stock exchanges of Australia and Singapore may compromise key regulatory functions now carried out by the ASX. A vocal supporter of the merger proposal, the Financial Services Council, yesterday conceded the deal might need to be adjusted so the exchange's compliance role stayed in Australian hands. Under the planned merger, an Australian subsidiary of the merged entity would retain responsibility for compliance, which involves ensuring companies follow listing rules such as those on continuous disclosure. But the council, which represents fund managers, said foreign ownership of the ASX could place this compliance role at risk." Regulatory black hole any one? Second or third thoughts?

And a perfect example of the black hole that might emerge appeared yesterday with a curious Hong Kong all paper offer for two local iron ore hopefuls, as Fairfax's Insider, David Symons explains: "There are more questions than answers surrounding Wah Nam International Holdings' audacious push to become the fourth force in Australian iron ore with annual production of 32 million tonnes. Wah Nam, listed in Hong Kong, yesterday made simultaneous bids with a combined value of $1.2 billion for Brockman Resources and FerrAus. But the offers consist only of Wah Nam scrip, requiring more than 5 billion new Wah Nam shares to be issued. The bidder is now capitalised at about $1 billion, but has few assets other than strategic stakes in Brockman and FerrAus worth less than $300 million, together with a limousine rental and airport shuttle bus operation that generated sales of $10 million last year." Odd bidder, Australian targets, would the Singapore controllers of the ASX really care about deals like this?

And The Australian's Sarah Jane Tasker wrote: "Wah Nam, an investment company that also owns a limousine business, is offering 30 of its shares for every Brockman share, valuing the company at $6.50 a share, or $929.6 million. The FerrAus offer – six Wah Nam shares for each FerrAus share – values the junior at $1.30 a share, with a market value of $267.4 million. Shares in both stocks soared yesterday on the news, with Brockman closing up 25.95 per cent at $5.97 and FerrAus 27.91 per cent higher at $1.10. Analysts said the big question was whether shareholders would want to take paper in a Hong Kong-listed limousine and resources company." Good question. Another would be, where has the money come from for the initial stakes?

And The Australian's Matthew Stevens was more sceptical: "Here we have a Bermuda-registered, Hong Kong-listed company that runs airport limos and a marginal copper mine in Hong Kong and the People's Republic of China attempting to acquire a pair of emerging Australian iron ore miners in an all-scrip offer that is planned to result in the first dual listing on the Australian and Hong Kong exchanges. To suggest that the complication of plans that Wah Nam loosed on us all yesterday took twin Pilbara targets Brockman Resources and FerrAus by surprise would be a fabulous understatement. Nonetheless, questions need to be asked and answered about whether there is any substantive PRC engagement with Wah Nam, either as an owner or financier of the business. Certainly, the fact that its shift into the mining business began with the acquisition of mainland Chinese assets would suggest there is a level of PRC comfort with Wah Nam management." More good questions. Come on ASX and ASIC, ask. Would they be asked if Singapore was in control?

China is hot and bothered, inflation is running ahead of plan, the economy continues to tease. The AFR reported this morning: "China's inflation soared to 4.4 per cent in October, raising fears that efforts by Beijing to control rising prices could trigger a slide in global commodity markets." And The Age's Ian McIlwraith wrote: "China's latest inflation figures show a blowout in the numbers for October, to 4.4 per cent compared with Beijing's 3 per cent target. It clearly knew the number was coming, turning down the flow of credit from its banks' taps this week by ordering them to increase their reserves. It has raised rates once and may now have to do it again. The US, which has been trying to stimulate its own economy and stave off the flood of imports from China, will be hoping that all this is a sign that its policies are working - and maybe that Wen Jiabao and his government will need to speed up the appreciation of the yuan."

Ireland has returned to haunt European and global markets, as Elizabeth Knight of the SMH writes: "Over the past 48 hours it has been Ireland – again – making headlines as the troubled child. The fact that the Irish government is hopelessly overgeared is nothing new. And the fact that it may have a problem repaying the interest on its sovereign bonds is also something that investors have been aware of for nine months. In Australia yesterday the markets did not even respond to this latest crisis. It seems that markets have become immune to spot outbreaks of financial disaster in small economies. How the world has moved on."

Woodside and Shell, anyone remember? It was so long ago. Well, The Australian thinks it has an update this morning: "Shell's decision to reduce its stake in Woodside Petroleum could signal it is looking to expand into other Australian assets. The market is tipping Santos could be on its buying list. While most of the speculation around the $3.3 billion sale of 10 per cent of Shell's 34.27 per cent stake has centred on likely suitors for Woodside, Shell's next move in Australia is also of interest." Ah, the whiff of coal seam methane in the morning.

The Australian's Andrew Main says: "We now hear 20 per cent shareholder Sumitomo of Japan has hired French bank Societe Generale's Hong Kong office to advise on future strategy. You can see why. Sumitomo came on board via a placement last year at $14 a share as part of a fiendish plan to ward off the advances of Chinese group SinoChem, which dropped its bid price from $13 a share to $12. Since then, a string of five profit downgrades knocked the stock down to below $3.35 by early September although it's now rallied to around $5 thanks to an absence of grim news. The specific problem for Sumitomo is that according to reliable sources, if its Nufarm parcel drops below approximately $6.50 a share, Japanese accounting rules require Sumitomo to write off half the value of the asset for which it paid around $740 million and that is perhaps not the outcome they want." Oh, dear.

Michael Pascoe pointed out on the SMH website yesterday afternoon: "There's a good reason the Australian Bureau of Statistics publishes a "trend” series on employment, as well as the raw and headline-dominating "seasonally adjusted” numbers – just don't expect the traders who move by jerking their knees to appreciate it. While the unemployment rate getting all the attention today reads as 5.4 per cent for October, up from 5.1 per cent the previous month, the trend series unemployment rate is steady on 5.2 per cent despite a jump in the participation rate, reflecting the fact that the Australian economy continues to do a marvellous job creating employment." But The Australian Financial Review reported this morning: "Escalating labour and construction costs have triggered a surge in budget overruns at mining and energy projects, sparking fears of a return to pre-GFC days when cost inflation strangled economic growth." That's news the Reserve Bank will be interested in.

And the AFR carried a very good point in the bank debate: "Commonwealth Bank chief Ralph Norris last week said Australia looked like it did not have "a particularly business-friendly environment”. He's right. And business has only itself to blame." And the paper editorialised today: "The government's only sensible response to the furore over bank interest rates and fees is to reduce barriers to entry for new competitors. Regulating the sector to a standstill will not help."

The Australian's John Durie says: "Next Monday, the Commonwealth Bank will put up for auction $110 million of unwanted Centro debt at about 55c in the dollar. CBA has had enough of the corporate nightmare, as has Germany's West LLB and RBS and apparently everyone else as the third anniversary of Centro's near collapse approaches. Some 25 per cent of the debt is now with hedge funds, which arguably is good news, given their aim would be to sell at a profit rather than to hold for ever. CBA had $250 million of the $3.5 billion headstock debt, but has sold some down. The recent revelations in this paper of Lend Lease's $17 billion bid for all of the Centro assets was a surprise." And just another instalment in what Durie rightly calls a mess, almost three years after Centro's collapse.

And Durie wrote yesterday: "Having delivered strong growth at Optus, Paul O'Sullivan is increasingly concerned over Canberra's broadband plans. O'Sullivan is fresh from bringing about the eighth successive quarter of double-digit revenue growth at the telecommunications carrier. The issue is not the mooted cost of the National Broadband Network, but what it will do to competition - O'Sullivan, like many others, worries that what started as a great idea is turning into an out-of-control behemoth that will undo all the good it purports to do." And the AFR's Chanticleer columnist wrote this morning: "While David Thodey struggles to get some momentum at Telstra, his rival at Optus, Paul O'Sullivan, is showing the benefits of getting in early and winning the lion's share of iPhone customers in Australia."

Finally this morning, The Australian's Tim Boreham makes a good point about advertising and share sales: "The bigger the promoter's display ad, the more wary investors should be in terms of parting with their hard-earned. Despite an unprecedented advertising blitz, the Queensland government hasn't exactly enjoyed a rousing reception for its $6 billion Queensland Rail sell-off. Westfield, we suspect, will struggle to sell the merits of the proposed $12 billion spin-off of its local shopping centres or, more precisely, the accompanying $3.5 billion capital raising that opened with a marketing blitz yesterday." Good points. Remember the campaigns for T1, T2, and T3?